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Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
[Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD Banking
Payment bank is in news because RBI Committee recommended it. Well see Nachiket Committee in detail, in separate articles later. This article only deals with Payment banks and allied Topics. 1. 2. 3. 4. 5. 6. 7. 8. 9.
Pre-Paid Instrument Providers (PPI) Why Nachiket hates PPI model? Why Payment Bank? What is payment bank? M-Pesa: Why India should get Payment banks? Payment Banks: Anti-Arguments USSD and Conflict of Interest USSD connectivity for Banking Mock Questions
http://mrunal.org/2014/01/banking-nachiket-committee-payment-banks-rationale-features-advantages-limitations-pre-paid-instrument-providers-ppi-ussd-ba
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17/1/2014
Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
By the way, unlike currency notes, these prepaid instruments are not fungible. For example, if you have 500 Rs. in your Airtel money account, you cannot get it exchanged for 500 Rs. in Oxigen prepaid card. (even if you manage to do it by some jugaad- there will be ~0.5% commission charge, you never get full convertability from one instrument to another instrument.) For more on fungibiity, click me
17/1/2014
Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
Direct problem for people whove money in Airtel account. indirectly, gives an opportunity for some crook to start a baseless rumor via facebook that airtel has deposited all that PPI money into ICICI/xyz bank and now theyll also go out of business => then juntaa will rush to demand their money back, share prices fall down and so on. creating instability in the banking-finance system. plus, Issues related to account security, KYC etc. Therefore, Nachiket recommends: 1. RBI should NOT give any more licenses to open PPI. 2. Still, If anyone is interested, RBI should ask him to become a Banking business correspondent OR apply for Payment Bank license. Now comes the main topic:
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Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
Mohan
Na
http://mrunal.org/2014/01/banking-nachiket-committee-payment-banks-rationale-features-advantages-limitations-pre-paid-instrument-providers-ppi-ussd-ba
17/1/2014
Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
SLR approved securities. Meaning? Meaning Payment bank can invest customers money in Government securities (G-Sec) and corporate bonds of reputed companies like Infosys, reliance, TCS etc. So? Investment in SLR securities give you return of atleast ~8%. So, payment bank can keep some money as profit and give the remaining to customer as interest. Toh thik hai. (then it is alright!) but what is SLR? click me
more characteristics of Payment banks: 1. Payment bank will enjoy all the rights and responsibilities of a Scheduled commercial banks (SCB- like SBI, PNB, BoB, Dena and ICICI) 2. Entry capital requirement will be Rs.50 crore. Hold on. I read in some newspaper that, to open a full scale SCB like SBI, you need minimum entry capital of Rs.500 crore. Then why such relaxation Mohan given to Payment banks? Why do you allow them to open bank with just Rs.50 crores? As I told you earlier, Payment bank cannot assume credit risk (meaning they cannot give out loans) and since they cannot give out loans=> there is no danger of loan default/NPA. Payment bank can invest money in SLR securities, but they are safe investments, you can easily recover money. In short, Payment bank faces near-zero risk of default. so, they dont need a large capital for emergency backup.
Nachi
Mohan Toh thik hai. (Then it is alright!) side note: Nachiket also recommended wholesale investment banks and wholesale consumer banks. But well see about them in a separate article later. For now, Lets make a table: System Payments Network Operator (like Mastercard, Visa) Payments Bank (Nachikets Brainchild) Sch. Commercial Bank (SBI, ICICI) White Label ATM (TATA/Indica$h) Can Give Loans (Credit)? No No Yes No Can Accept Can Make Retail Deposits? Payments? No Yes Yes No Yes Yes Yes Yes
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http://mrunal.org/2014/01/banking-nachiket-committee-payment-banks-rationale-features-advantages-limitations-pre-paid-instrument-providers-ppi-ussd-ba
17/1/2014
Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
No
No
17/1/2014
Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
OR Mr.Nachiket could have simply recommended all PPIs like Airtel money should pay interest on the money held in digital wallets. instead of coming with a new type of payment banks #2: Not 100% financial inclusion Financial inclusion is a bigger thing than mere payment/money transferFinancial inclusion means access to complete bouquet of financial services banking, investment, insurance, pension everything. But thats very difficult to achieve through Payment bank system. (Because Nachi himself said, bank cannot assume Credit risk.) #3: Price wars Schedule commercial banks also permitted to run Payment banks through their subsidiaries. That defeats the whole purpose because SBI is a giant elephant with large resources and manpower. If it starts a payment bank then other small players payment banks cannot compete, and theyll bleed in price wars. in the previous article on White label ATM, we saw how ATM operation costs are hurting the entire banking sector. So instead of allowing NBFCs and private companies to open Payment banks and compete with regular (commercial) banks, Nachiket should better suggest a model where they all can work in synergy to achieve 100% financial inclusion.
Mohan
Nachi What is your point? Mohan There is conflict of interest=> customer exploitation. Observe: Suppose both Airtel and Idea got Payment bank license. I open a payment bank account with Idea but keep airtel phone number. Then what if airtel charges more money per SMS when I want to do some net banking /balance inquiry about my Idea BANK account? And airtel walla also promises me that if I open Payment bank account in Airtel, theyll give free services and even discounts @Bharti-walmart malls! Your concern is valid. There will be conflict of interest when such large companies also run payment banks. To solve this problem, All mobile companies must be ordered: Nachi 1. to provide USSD connectivity as per recent TRAI regulations (Rs 1.5 per 5 interactive sessions.) 2. to categories all SMSs related to banking and financial transactions as Priority SMS services (with reasonable rates)
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http://mrunal.org/2014/01/banking-nachiket-committee-payment-banks-rationale-features-advantages-limitations-pre-paid-instrument-providers-ppi-ussd-ba
17/1/2014
Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
Mohan
Man!! that means RBI and TRAI will have to take additional headache and supervision to prevent customer exploitation. That is one more negative argument against Payment banks. Better just let the regular banks handle stuff instead of opening new payment banks. Anyways, what is this USSD connectivity?
Mock Questions
1. What do you understand by the term Pre-Paid Instrument Providers (PPI)? A. White label ATMs B. Brown Label ATMs C. Both A and B D. Neither A nor B 2. Recently, Nachiket Committee on Financial services, has recommended a new type of Payment banks. Which of the following, is not true about them? A. Scheduled commercial banks will be allowed to open Payment banks as subsidiaries. B. Payment banks will be exempted from CRR and SLR requirement. C. Mobile phone companies, consumer goods companies, post office and cooperative societies will be allowed to apply for Payment bank license. D. None of Above 3. Correct statements about Pre-Paid Instrument: A. With RBIs permission, prepaid instruments are issued in the form of smart cards, internet wallets, or mobile wallets. B. They can be used for purchasing railway tickets, paying utility bills and purchase of goods and services. C. Scheduled Commercial banks can issue such Pre-Paid instruments.
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Mrunal [Banking] Nachiket Committee: Payment Banks- Rationale, Features, Advantages, Limitations, Pre Paid Instrument Providers (PPI), USSD
D. As per RBI rules, 4% interest rate has to be paid on each such Prepaid instruments 4. Find the correct statement(s) about Payment Banks as recommended by Nachiket Mor Committee A. Payment banks will be kept outside the purview of Banking regulation Act. B. Payment banks will be focusing mainly on Service class employees and HNI (High networth individuals). C. Payment banks will have to follow the targets under PSL (Priority sector lending). D. None of above 5. Correct Statements about USSD A. USSD facilitates real-time two-way exchange of data between mobile phone and the service provider. B. As per TRAI regulation, mobile companies are requireed to provide all USSD services free of cost. C. Both A and B D. Neither A nor B Descriptive/Mains 1. Nachiket Committees proposed payment banks are better suited to achieve the goal of financial inclusion compared to the existing setup in banking sector. Do you Agree? Justify your stand. (10m | 200 words) 2. Write a note on Nachiket Mor Committees recommendations regarding Payment Banks. (5m | 100 words) 3. Compare and contrast between the proposed Payment banks and Scheduled Commercial banks. (5m | 100 words) 4. Define USSD. Explain its utility in Mobile Banking and Financial inclusion. (5m | 100 words) Visit Mrunal.org/Economy For more on Economy, Banking, Finance, taxation and more.
URL to article: http://mrunal.org/2014/01/banking-nachiket-committee-paymentbanks-rationale-features-advantages-limitations-pre-paid-instrument-providersppi-ussd-banking.html Posted By Mrunal On 14/01/2014 @ 20:56 In the category Economy
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